Wyolotto!

Jackson Hole, Wyoming – Less than one month away from launch, Wyoming is poised to unveil its new state lottery with participation in two well-known multi-state games. Lottery tickets go on sale August 24 at 10 Jackson retail locations, and more than 400 statewide.

It’s been a long wait for lottery players who’ve become accustomed to making the drive to surrounding states like Colorado and Idaho when games like Powerball and Mega Millions – both will be offered in Wyoming – reach hundreds of millions in payouts. Wyoming became the 44th state to create a lottery on July 1 after Gov. Matt Mead signed HB77 into law in March.

Wyoming’s lottery is modeled after Georgia’s state game meaning the Equality State has opted to elect a board of directors to oversee the lottery and report directly to the governor rather than run the sweepstakes in-house. Intralot was chosen from a field of the world’s largest gaming vendors that included Scientific Games and GTECH. Wyoming Lottery Corp. CEO Jon Clontz said the organizational structure will keep state resources to a minimum.

“Rather than make it a state agency like I had in Oregon, where everything is done internally and we had about 450 employees, the Wyoming model outsources everything to Intralot,” Clontz said. The CEO ran Oregon’s lottery from 2011 to 2013. “This way we currently have only eight employees.”

Clontz was tapped in early October to run the state’s debut lottery. He rescued Oregon’s lotto system after three top administrators were abruptly fired amid allegations of misconduct and a loss of direction when plans for an online game never materialized. It was Clontz’s first experience in the gaming industry. Previously, the Washington State native was the COO for the State Department of Veterans Affairs in Washington.
They were dealing with some issues and I helped to work those out and established better team building and organizational development,” Clontz said.

Estimates on what the state lottery will bring in vary widely. During legislative debate last year, House and Senate leaders were led to believe a state lottery system could bring in anywhere from $20 to $40 million, annually.

Wild dreaming, sober estimates

Rep. Dave Zwonitzer, R-Cheyenne, sponsored the bill that passed after decades of failed attempts. The vote was close. After clearing the House on a 33-25 vote, senators originally shot down the bill but later passed an amended version 17-13 after appropriations to the Common School Permanent Land Fund for education were made possible – money, some lottery skeptics say, schools in Wyoming will never see.

“The promoters of the Wyoming lottery claim net proceeds to be between $20 million and $40 million. But even the fiscal note to HB 77 indicates a best estimate between $5 million and $9 million, after it is established and start-up costs have been paid. So who are they kidding?” wrote Chesie Lee, executive director of the Wyoming Association of Churches in a Star Tribune Op-Ed last year.

The Senate floor compromise targeted schools to receive any net proceeds after the first $6 million generated by the lottery. Later, more conservative estimates pegged the figure at around $25 million gross, before payouts (generally 60 to 65 percent of the take) and expenses. Proceeds from the lottery will be shared with Wyoming cities and counties. Any proceeds beyond $6 million will go to the school fund.

“The first year I expect we will make between 13 and 17 million but revenue should improve going into the second year,” Clontz admitted. “Just doing the math, you have 580 thousand people in Wyoming but only about 370 thousand are age 18 or older and eligible to play. If every single one of those people bought a single ticket every week, twice a week, well you can see what we’re looking at.”

Further dampening revenue projections is the state’s refusal to offer any type of instant payouts like scratch-off tickets. Industry analysts estimate instant winner games account for at least half of the national lottery revenue – some $65.5 billion in 2012, according to a CNN Money report. Wyoming stands to net between $3.25M and $4.25M in the first year.
Startup costs will lower that figure even more.

“Of course the board has instructed me to pay the loan back to the bank first, within the first 10 months, hopefully.”
The Wyoming Lottery Corp. borrowed $1 million from Jonah Bank last August for operational costs. Clontz’s salary is $165,000. Clontz said the corporation borrowed another $2 million later at competitive interest rates.

Start small, think big

Clontz said he has received direction from the governor’s office to start with the two most populate multi-state games, Powerball and Mega Millions, and expand if he can.

“My impression is it’s legislators’ intent to start out with a smaller footprint and see how things go. To just make sure the gaming system has integrity,” Clontz said. “We are just starting to research a Wyoming-specific weekly lottery for next year.”

The national games are overseen by Iowa-based Multi-State Lottery Association (MUSL). MUSL is in charge of the software that chooses winning numbers. All money spent on tickets for these games within Wyoming stay in the state.

Wyoming Lottery Corp. COO Louise Plata said her office, headquartered in Cheyenne, is preparing stringent safeguards to ensure retailers and bettors are protected.

“One of the beautiful things about taking part in a multi-state game is all jurisdictions have to comply with a very rigorous set of rules and standards,” Plata said. “They are adhered to by MUSL, who will audit every jurisdiction. Our headquarters will have its first technical audit next week. IT security, building security, will be looked over and anything that doesn’t make the grade we will need to correct before we go live.”

Integrity first and foremost

Retailers have very little control over lottery ticket sales. They don’t own the terminals and have no input as to where Itralot chooses to set them up.
Stagecoach manager Wayne Johnson said he hasn’t heard much from Intralot lately. “They hire specialists and they install everything and set it up the way they want it,” he said. “It’s odd because I went to the informational meeting a long time ago and then an outside company called me and told me I’d been selected,” he said. “I guess we passed the background check. Johnson said he expects the terminal will go in the liquor store area and should “definitely boost sales.”

Plaza Liquors owner Stan Kucharski also filled out “all kinds of paperwork” and then received an email and a phone call saying he was in. An August 6 training session is next but he still hasn’t seen a machine or heard anything lately. Kucharski said he thinks lottery ticket sales will help his business a little bit, but he is dreading the big payout rush.

“The only time it’s really going to be a hassle for us is when it’s going up in the hundreds of millions. People that normally would go to IF will probably buy their tickets here.”

A total of 10 Jackson retailers have made the official list so far but more could be waiting for approval. Kucharski expected that number to be higher.

“I was surprised to see there wasn’t as many locations in Jackson as I was expecting,” Kucharski said. “In fact, when I went to the meetings, they were going for 500 locations and I think they still have only 350.”

Plata said retailers will be watched closely. “We will be able to see every single transaction – everything that a retailer does is logged into the system,” she said. “If there is anything that is a breach of security or integrity, anyone trying to commit fraud, any ping [out of place], anything at all, we will see it immediately on our side. It’s an incredibly robust system run through satellite communications and it is nearly impenetrable.”
Lottery organizers are heading the advice of Tennessee Lottery CEO Rebecca Hargrove, who was invited to speak before board members last July. “It’s a ‘zero mistake’ business,” she warned them.